EU debt crisis: as it happened

• Three people reportedly killed in a bank fire in Athens• Riot police fire tear gas at demonstrators in Athens after stones are thrown during general strike• Euro and stock markets fall again• German parliament starts to debate €110bn rescue package• Angela Merkel: We are at a fork in the road

A Greek protester is seen behind a banner during a rally in Athens. The European debt crisis is deepening. Photograph: Thanassis Stavrakis/AP

9.30am: Another day, another panic in Europe's ongoing economic crisis as world stock markets continue to register deep alarm over attempts to rescue Greece's debt-ridden economy.

Over in Athens, a general strike is just getting underway. And shares are falling across Europe, adding to yesterday's heavy losses.

West Wing fans may remember this skit, from Series One:

"You said you'd fix it.""I did fix it.""It's broken again, Leo."

That's rather the feeling in the City as I type. But if the €110bn rescue plan agreed last weekend fails to calm investors' nerves, what will? We'll be bringing you the latest action from Greece, and closer to home, during the next few hours.....

9.53am: Yesterday, protestors hung banners outside the Acropolis calling for revolution. This morning, the industrial action has escalated with a general strike in protest at the severe cutbacks facing the country in return for desperately needed financial aid.

This threatens to leave transport networks at a standstill, with planes grounded and trains stuck at the buffers. Hospitals will lack emergency medical staff, while teachers, office workers and staff at the country's parliament are also taking part in the dispute. Two protest marches are due to take place in Athens, and according to local reports people are gathering in the centre of the capital now.

This is the third general strike in as many months, and comes as Greece's parliament debates the €110bn rescue package agreed last weekend.

Of course, the sight of protestors on the streets of Athens is nothing. As one government official told the Associated Press:

For years there's been strikes and protests in this country without much consequence. We're used to it.

But Nobel laureate Edmund Phelps argued on Bloomberg TV this morning that the strikes will discomfort international investors:

These demonstrations must be turning the mood of the capital markets even more against Athens.

10.03am: In case you're playing catch-up, here's a couple of links to explain what happened yesterday:

Saying that, shares have now come off their early lows and the FTSE is only down another 18 points today. That's effectively flat, as a number of big companies went ex-dividend today.

The catalyst for this mini-revival appears to be new growth forecasts from the European Commission, which now expects a more robust recovery through 2010 and 2011. It predicted that the overall European economy would grow by 1% this year, and 1.7% next year.

10.22am: The euro also isn't looking too healthy today either. Having dropped through the $1.31 mark yesterday it continued falling overnight, hitting a 13-month low of $1.2936.

Right now, it's trading at $1.2974. Against the pound it is down at 85.6p.

Over in the bond markets, the yields on two-year Greek bonds also rose again to as much as 17.5% this morning, suggesting that investors remained fearful that Greece might default.

IMF chief executive Dominique Strauss-Kahn hasn't done much for market sentiment either, in his first interview since Sunday's rescue talks concluded. He told the La Parisien newspaper that there was still a risk of the "contagion" spreading from Greece to other weaker members of the eurozone such as Portugal.

Strauss-Kahn also said that Greece could not have lasted much longer without the rescue package:

It was on the edge of bankruptcy and soon it would not have been able to pay its civil servants.

10.45am: Our Greece correspondent, Helena Smith, has been out in Athens watching the protests unfold. She expects that 100,000 people will take to the streets today.

Here's a flavour of Helena's early report from the scene:

By mid-morning the usually teeming plaka district beneath the ancient Acropolis resembled a ghost town enjoyed only by the odd tourist – including those who had not managed to change their flights in time before striking air traffic controllers closed the country to the world.

"We were due to fly out today but had no idea the strike would be this bad," said Shelley Brown an American tourist visiting visiting Hadrian's Library, a Roman site and one of the few archaeological treasures to remain open. "It seems to be Greece is going under."

"These cuts totally one-sided, savage and unfair," said Yannis Panagopoulos who heads the two-million strong Confederation of Greek Workers, GSEE. "It is only the poor who are being asked to pay for this crisis. The rich, once again, have got away with it."

And the prospect of a longer recession as predicted by the EC today (see 10.07am) is causing dispair on the streets.

"We are heading into a deep recesion and things are going to get worse," said Andreas Loupis, a 30-year-old kiosk owner. "People are hungry and pretty soon they will start turning on one another."

10.50am: The most important action today could be played out in the German parliament, where lawmakers started to debate the €110bn bailout proposal this morning.

Merkel's strategy has been to insist that Greece is too important to fail, but to take every opportunity to emphasise just how much pain the country will go though. She just gave a speech to the German Bundestag, or lower house, in which she repeated this tactic:

We're at a fork in the road....This is about nothing less than the future of Europe -- and with it the future of Germany in Europe.

There is no alternative to the aid to be agreed for Greece if we want to secure the financialstability of the euro area. It must come to avoid a chain reaction in the European and international financial system and the risk of contagion of other euro member states.

That was the carrot. Here's the stick. Merkel told the parliament that "budget deficit sinners" should lose their EU voting rights until they ment their ways, and added once again that Greece will only get the money if it does everything possible to cut its deficit.

Merkel vehemently defended the decision to support the loan to Greece, a whopping €22.4bn of which Germany is due to shoulder. She told a full house that the "future of Europe and the future of Germany in Europe" was dependent on the deal going through. A vote on the legislation is expected on Friday.

Merkel has little choice but to push the deal as something Germany cannot do without, particularly as it is so hotly opposed by the public, with some polls showing that up to 80% of Germans are opposed to it. The popular line heard frequently these days in pubs and the tabloid press is: 'why should we pay for the Greeks who retire at 63 [under the new plan], while we have to wait until we're 67?'

Merkel referred to the IMF/Eurozone package as an 'ultima ratio', but argued it was vital to ensure the stability of 'our currency', the Euro. She was clad in a fetching green jacket - the colour of hope or naivety?

She's come under intense criticism over the past few days over her apparent hesitation to act. Today she clearly recognised the Bundestag speech as her best chance to defend her behaviour. Addressing her critics, she said it was not a decision to be taken lightly. Waiting for concrete figures to come through, but it appears her remarks might have contributed to steadying the markets, which had a bad start this morning over concern that the deal will be insufficient to save Greece from bankruptcy.

A commentary in today's Die Welt criticises Merkel and her finance minister Wolfgang Schäuble for stoking the public's emotions. Such an approach is 'a dangerous game," it writes, "because no one is in a position to seriously promise that a new injection of money can really prevent Greece from bankruptcy and restructuring".

11.20am: If the eurozone fails to keep the Greek crisis under control then Portugal could be the next country to feel the heat. It just sold €500m of short-term debt, but was forced to quadruple the interest rate it agrees to pay to borrow from the financial markets.

The auction of €500m of six-month Treasury bonds was settled at an average yield of 2.955%.

There was a bid-to-cover ratio of 1.9, suggesting that the markets haven't lost their appetite for Portugese debt altogether. The hike in the yield is a worry - both for Portugal and other weaker members of the Eurozone such as Spain.

And while we're looking at Lisbon, it's worth noting that the cost of insuring Portugese government debt against default also rose today. The credit default swap contract on a five-year bond rose to 360 basis point, up from around 344 overnight.

11.33am: More from Kate Connolly in Berlin. She reports that insurance experts are advising German travellers to Greece that they may be entitled to cancel their holidays and get full refunds, if they are at risk of having them ruined or if their lives are endangered due to the general strike in Greece:

There's already evidence that substantial numbers of Germans have cancelled holidays to Greece, normally a popular destination for them, or avoided it altogether this summer because of the considerable ill-feeling that exists in Greece over Germany's reluctance to help the country out. Swastikas have been waved in the streets of Athens, etc. Some populist commentators are saying that Germans being punished twice for the Greek disaster – 1. they'll be paying it for years in capped wages, higher debt, etc. 2. their holidays are being ruined to boot.

Tourism is a vital part of the Greek economy, generating close to a fifth of its GDP (estimates vary).

11.41am: The protests in Greece are getting heated, with heavy crowds now massing. TV footage from the scene shows large numbers of police in protective gear defending the parliament building. Some protestors are running up and throwing what look to be rocks at the police, who are forming a phalanx with large riot sheilds.

The Associated Press has a report from the scene:

Clashes have broken out in Athens and the northern city of Thessaloniki, as tens of thousands of Greeks demonstrate against harsh new spending cuts aimed at saving their country from bankruptcy.

In the capital, a group of about 60 demonstrators attempted to break through a riot police cordon guarding Parliament, throwing rocks at police who responded with volleys of tear gas. Violence also broke out in Thessaloniki, with youths smashing windows of stores and fast food restaurants.

Communist labour union members march in Athens. Photograph: Yiorgos Karahalis/Reuters

I should add that most of the people protesting appear to be acting peacefully. But one man just broke a large piece of stone off a wall and lobbed it at the police, and that has prompted the police to fire tear gas and try to drive the crowds back...

12.11pm: The protestors continue to gesticulate at the lines of police around the Greek parliament, but the tear gassing seems to have quelled the stone throwers who were threatening to storm the building.

We're hearing that the crowd were chanting "Thieves, thieves" - angered by the swingeing cuts in pay, bonuses and pensions that are due to be imposed soon.

Elsewhere in Athens, parts of the centre are jammed with crowds of people waving banners, while other groups are marching in long lines. It sounds like fire crackers are being let off too, leaving clouds of smoke drifting overhead.

We also have more action from the German parliament from Kate Connolly:

The heckling from the opposition benches that accompanied Merkel's speech to the Bundestag was an indication of just how high emotions are running on this topic in Germany. It's therefore surprising that Frank-Walter Steinmeier, leader of the opposition Social Democrats hasn't made more of the opportunity to make political capital out of this.

Speaking to the Bundestag, he voices his belief, though, that Merkel has made the crisis worse by failing to act for months.

Refers to the Greek crisis as 'the greatest test of survival for Europe since the signing of the treaty of Rome'.

Also compares the bailout package as, I think I heard correctly, to a 'pipe swaying in the wind'. Can only think he means those lorries with insecure loads you change lanes to avoid on the motorway. Scary image.

12.22pm: The AFP news agency is reporting that petrol bombs have been thrown at shops in Athens, and on the live TV feed we can see one small fire burning in the road. Dark clouds of smoke are now rising over the centre of the capital.

Government officials estimate that 25,000 people are taking part in the protests today, although other sources put the figure at 60,000.

More teargas is being fired on the crowds, although it still appears that few people are taking physical action. It also sounds like stun grenades are being deployed.

Alex Rossi, Sky's European correspondent, was caught up in the tear gas - forcing him to halt a live report from the scene. Before this happened, he was saying that "angry young men wearing smoke masks...they are the ones confronting the police", adding that older people were also venting their fury.

12.31pm: The extent of the fury on display in Athens today does raise serious doubts about whether prime minister George Papandreou can push through his austerity measures. If he can't then Greece will not get its €110bn bailout. Without those funds, it's hard to believe that the country could keep servicing its debts for much longer (a major chunk of government debt comes up for renewal later this month).

The clouds of black smoke I mentioned at 12.22pm are probably from an unidentified building that has been set alight. Reuters is reporting that some people have been evacuated from the site, but that others may still be inside:

"There are probably people trapped in the building," the fire brigade said in a statement.

TV footage from the scene is showing that the police have managed to completely clear some streets near the parliament, where lumps of marble were gouged from the walls and thrown earlier today. Elsewhere in Athens we can see peaceful protests continuing, with large groups continuing to march. One of the banners on display reads "Education for Sale"

Demonstrators and riot police faced off on a bridge near Syntagma square in front of the Greek parliament in Athens this morning. Photograph: Yiorgos Karahalis/Reuters

The clashes in Greece have unsettled the financial markets. The euro has fallen to $1.2916 (so still a 13-month low), and the FTSE 100 is now down 38 points at 5373. Greek bank shares have fallen almost 2% today.

Protestors shout slogans as they march in central Athens

1.01pm: The latest news from Athens is that the burning building is a bank, and that 20 people are (or possibly were) trapped inside it.

The Greek police just put a statement out saying that one person has been injured, but no-one has been killed. That refutes a report from AFP, which said that there had been a fatality at the bank.

Union leaders have been explaining why there is so much anger on the streets, saying that low-income Greeks will suffer disproportionately from the austerity measures.

"These people are losing their rights, they are losing their future," said Yiannis Panagopoulos, head of GSEE, which is one of the two largest union organizations. "The country cannot surrender without a fight."

1.26pm: We're now getting news flashes from Athens that three people have been killed in the bank fire. That's coming from the fire brigade, via both Reuters and the Associated Press:

"We have found three dead people in the building that is on fire," the fire brigade said in a statement.

Sky's Alex Rossi is reporting from the scene now, saying that two women and one man have died, and that the fire began when a molotov cocktail was thrown into the building. It is not clear if they were staff or customers.

The bank is in the commercial district of Athens, where graffiti on the walls includes attacks on Goldman Sachs and the IMF, Rossi reports.

1.45pm: Looking at the wider financial markets again, and Portugal has received a blow from ratings agency Moody's. It just warned that it may downgrade Portugal's credit rating, which is currently AA2 (so two rungs from the top AAA rating).

This has sent Portugal's index of leading shares down by nearly 2%, and helped to knock the FTSE 100 down 62 points at 5349.

Reuters reports that the cost of insuring a five-year Portugese government bond against default has just soared to a record of 407 basis points (from 344 bsp yesterday). The equivalent credit default swap for Greece has also jumped to a new record high of 850 basis points.

Stock market trading will begin on Wall Street shortly, but we are already seeing a surge in demand for US Treasuries (a traditional safe haven in times of trouble).

The euro has kept falling, hitting a low of $1.2883. It hit its low point around 12.40pm, around the time that we started to get reports that a bank was ablaze in Athens. Bank shares in Greece are now down 5% - extending early falls.

The pound has also fallen against the dollar today, hitting a five-week low of $1.5087. One financial trader said sterling was being pulled down by the weakness of the euro.

2.10pm: Just updating those financial numbers, as the declines has continued. The euro just hit $1.2806, down nearly two cents against the dollar so far today, and the FTSE 100 is now down by 92 points at 5318 (on top of yesterday's 142-point fall).

2.21pm: We have another update from Kate Connolly in Berlin:

In contrast to the dramatic scenes being played out in Greece, Germans are indulging in a bout of soul-searching about how it came to this. In her speech to the Bundestag this morning, Merkel repeated her belief that it was wrong to allow Greece to join the Eurozone in the first place, some 10 years ago. (Isn't this yet another signal to the markets not to trust those behind the attempts to bail Greece out?) She also reiterated her call for Europe to tighten its budgetary rules to prevent other countries from heading into catastrophe. This will also mean that it'll make it more difficult for newcomers to join the zone.

On the same topic, Bild Zeitung, a barometer of popular sentiment in Germany, has a page 3 story which asks: "Who let the Greeks into the Euro?" Hands up - those who attended the decisive EU summit in June 2000 – including: Tony Blair, French leaders Jospin and Chirac, Germany's Schröder, Portugal's Guterres, and others.

"Now no one wants to own up to having done so," the paper witheringly declares.An 'insider' from Merkel's chancellery tells the paper: 'Greece should never have been allowed into the Euro in 2001. But no one thought it possible that little Greece had the capability to rattle the whole of Europe". Which indicates the level of economic naivety that existed when the Euro project was being shaped.

2.25pm: Looking at the UK briefly, the European commission issued a stark warning to all the political parties on the eve of the general election. In its spring forecasts, the EC said that the UK deficit for this calendar year would hit 12% of GDP, the highest of all 27 EU nations - overtaking Greece and Ireland - and worse than the Treasury's own forecasts.

2.45pm:It's Peter here. Some more on the main news from Athens: the fire brigade say the bodies of two women and a man were recovered from the burned-out wreckage of a branch of Marfin bank, on the route of the main march into the city centre. Five more people weere injured. The building reportedly caught fire when youths wearing hoods broke a window and threw petrol bombs inside.

2.50pm:To no one's real surprise, Wall Street has opened lower. The Dow Jones dropped almost 90 points, or just over 0.8%, in early trades. Fears about the debt crisis potentially spreading through Europe overshadowed some cheer over new jobs in the US private sector.

2.54pm:The EU president, Herman Van Rompuy, is busy trying to persuade people that just because Greece is a financial basket case there's no reason to assume the worst about Spain and Portugal as well. Greece is "a unique and particular case in the EU" because because it "has cheated with its statistics for years and years," he said. I'm guessing he's too busy to write a reassuring haiku for good measure.

3.06pm:Here's the latest round-up from Reuters about the Athens violence. The story adds that the three people who died in the bank are believed to have been asphyxiated.

Hundreds of black-hooded anarchists roamed the streets, smashing store windows and hacking chunks of marble off buildings to throw at police.Although they were behind the worst of the violence, other protesters joined them in pelting police with bottles and trying to storm parliament.Presidential guards, who usually stand immobile in front of parliament, left their posts during the worst of the clashes.Some of the marchers had dispersed by mid-afternoon, but many were still in the streets, which were littered with burning garbage containers. Police continued to fire tear gas, which rose in clouds above the centre of the capital.A bookstore and a McDonald's restaurant were among businesses that had their wondows smashed on the central Stadiou Avenue, where the bank branch was set on fire.

3.17pm:The various TV correspondents in Greece are shocked at the extent of the violence and seem to be blaming far-left or anarchist protesters who, they say, went out intent on violence. Sky's man in Athens says that even after reporting on regular demonstrations during his 13 years in the Greek capital he's shocked at the amount of damage. The BBC's Malcolm Brabant tells its website:

This demonstration... looks better organised... with clear "military" objectives. But the deaths are going to make the protesters pause. And there is going to be a backlash against the anarchists who are going to be the main suspects in this.

3.31pm:With half of Europe hanging desperately on Standard and Poor's every word, here's another point of view from the world's biggest bond fund manager, Pimco – why are we bothering? Pimco's managaing director, Bill Gross, writes in a comment that the credit ratings agencies "no longer serve a valid purpose".He adds:

Their warnings were more than tardy when it came to the Enrons and the Worldcoms of 10 years past, and most recently their blind faith in sovereign solvency has led to egregious excess in Greece and their southern neighbors.

Greek protests: Bloomberg TV

3.39pm:Here's a screenshot from Bloomberg TV showing some of the chaos in Athens as it happened.

3.40pm:Our super high-tech live blogging system doesn't as yet feature tiny Bulgarian, Romanian or Serbian flags. If you believe Thomas Mirow, president of the European Bank for Reconstruction and Development, we'd better load some. He told reporters in London:

There is a potential risk in countries in which Greek banks play a special role - Bulgaria, Romania, Serbia. Up to now we haven't seen any major effect, Greek banking subsidiaries have behaved well.

3.50pm:Greece's prime minister, George Papandreou, has condemned what he described as the "murder" of the three people who died in the bank fire bombing, all of whom were staff members. Those to blame would be tracked down and brought to justice, he promised parliament

4.00pm:

4.10pm:The European Comission president, Jose Manuel Barroso, has castigated the speculation which has blighted local markets in recent weeks, warning that there could even be stiffer regulation to come. He said told the European parliament:

The Commission will do whatever necessary to ensure that financial markets are not a playground for speculation. We will ... act swiftly if further regulation is required.